C&W Sees Notable Retail Investments

EAST RUTHERFORD, NJ-Bucking current real estate investment market trends, Cushman & Wakefield’s Metropolitan Area Capital Markets group has closed 18 investment deals during the first eight months of 2009. The big surprise? One-third of that activity involved retail product.

“The retail industry is severely stressed–stores are closing, many tenants are seeking to modify terms of existing leases, and the sector is not expected to show any growth in the short to immediate term,” says Andrew Merin, vice chairman and head of C&W’s Capital Markets group. “At present, retail is not a favored product type on the acquisition side because fundamentals are weak, and consumers are not spending. The number of retail sales that we have completed so far this year is both unexpected and interesting.”

According to Merin, motivated sellers were the common thread among the six retail deals his team has closed recently. “Most owners tend to believe that it is not a good time to put properties on the market, although cap rates have merely moved back to historic norms,” he notes. “The new market rate pricing might appear stressed, or distressed, but that perception means little as our completed transactions now define the new normal. Grocery-anchored centers are still highly sought after.”

In Mohegan Lake, NY Centro Properties sold its Cortlandt Towne Center to Acadia Realty Trust for $78 million. The 642,000-square-foot regional power center houses 41 tenants, with anchors including Wal-Mart, A&P Food Market, Barnes & Noble, Best Buy and a number of other big-box retailers. The property has historically maintained a 95% occupancy level but was only 85% leased at the time of sale due to the 2008 bankruptcies of Linens ‘n Things and Levitz.

“Two of the biggest obstacles in the capital markets today are the limited number of active lenders and the scarcity of buyers for sales greater than $50 million,” relates Merin. “Acadia was able to acquire the property via an available credit line, in an all-cash transaction, differentiating themselves among more than a dozen other offers. This sale demonstrates that high-quality, well-located assets with strong occupancy histories still generate high interest from the investor community.”

An undisclosed C&W institutional client opted to sell the Marketplace at Rockaway–a stabilized, 241,000-square-foot shopping center with high credit tenants like Wal-Mart, Bed, Bath & Beyond and a DSW Shoe Outlet. Friendwell Group of Cos. acquired the property for $29 million, assuming an existing seven-year loan.

In Monmouth County, an institutional owner sold a 218,524-square-foot fully occupied grocery-anchored community center to the Azarian Group for $34 million. “Unlike many sellers, these clients elected to market two of their best assets–with successful outcomes,” Merin says. “Strong tenant lineups assisted both transactions significantly.”

Foreclosure motivated the sale of Uniondale Shopping Center in Uniondale, NY, which Northwest Mutual had taken back from the developer. Piermont Properties, a Long Island-based private investor, acquired the 60,807-square-foot property for an undisclosed price. The vacant store sits adjacent to a separately owned Wal-Mart store, offering a prime location for a supermarket or alternate big box tenant.

“There is simply not an abundance of product available for purchase in the Long Island market,” Merin notes. “Piermont took advantage of a great value-added opportunity, exercising foresight and the financial ability to consummate this type of transaction.”

Significant amounts of available capital was also key in the sale of Echo Plaza, a mixed-use retail and office complex in Springfield. Larken Associates acquired the asset for approximately $16.3 million in cash. The 66,568-square-foot neighborhood shopping center was 71% leased at the time of sale to a mix of national and local retailers, including Big Lots, Outback Steakhouse and Sherwin Williams.

Larken is currently in the midst of upgrading the facility, with a renovation plan that includes a new exterior façade and roof, new tenant signage, an upgraded marquee sign and exterior landscaping at Echo Plaza Shopping Center, as well as a new lobby, common bathrooms and corridors at Echo Executive Office Building. Health Club, No Body Denied, recently signed a lease for a 21,500 square foot fitness center

“Below-market leases, near-term expirations and available space provided Larken with an excellent repositioning play,” according to Merin. “Not all regional owners focus on both retail and office, and even fewer are able to make an all-cash purchase, which was key in this value-add buy.”

Merin notes that the retail property sales his team has completed provide an interesting cross-section of those happening in the New Jersey/New York region and across the country. “They almost all involve motivated and realistic sellers–like Mohegan Lake, Uniondale and Springfield–or stabilized situations such as Rockaway and Monmouth County, where existing debt also was key,” he says. “It will be interesting to see how this trend plays forward in the coming months.”